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Oxford Review of Economic Policy 2006 22(2):248-259; doi:10.1093/oxrep/grj015
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Oxford Review of Economic Policy vol. 22 no. 2 2006 © The Author (2006). Published by Oxford University Press. All rights reserved.

Network Regulation

Simon Cowan
Worcester College, Oxford1

Abstract

This paper assesses how price regulation for energy, water, telecommunications, and rail networks has developed in the two decades since incentive regulation was introduced. Regulation is necessary because Coasean bargaining is unlikely to produce efficient outcomes, and because the consumer and the firm have relationship-specific capital and are unable to write long-term contracts. Incentive regulation has been successful at promoting operating efficiency in the UK and elsewhere. Incentive regulation has, so far, also been successful at promoting investment, but some challenges remain for regulators and policy-makers. The relationship between the required cost of capital and the extent to which prices are allowed to track costs is explored, and the implications of the recent large increases in debt-to-equity ratios for regulation is discussed.

Footnotes

1 E-mail address: simon.cowan{at}economics.oxford.ac.uk


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